We Should Always Be Bullish

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I’ve been holding back on writing this blog and on using that title. Yes I know, it’s a bold statement. Sometimes, the market is lousy and the outlook bleak. But now is a good time to remember that it treats patient, long-term investors very well.

I’ve been doing this work long enough to have been through several bad markets. The financial crisis of 2008 saw the worst stock market declines in a generation. The recent pandemic also threw markets into a tailspin. In both cases, I can distinctly remember specific clients who had put money into the markets just before things went south. The timing seemed awful.

In one case, it was the summer of 2008 and I had just begun working with a new client. So we both had a tangible starting point and could plainly see the amount of money they had when they opened their accounts with me. Within weeks, it was worth a lot less. It was a balanced portfolio of mutual funds and at its worst, it was down close to 25%.

In March of 2009, markets began to recover. It was close to two years before these clients were back to where they started. And, for the next couple of years, their cumulative three and five-year returns were positive but quite low. It wasn’t fun. But as time went on, their returns returned to the long-term averages. They are still clients today and when you look at the numbers, it’s hard to tell that those huge losses ever occurred.

In another scenario, a couple of clients brought new money to the table and made stock investments in late February 2020, just before the pandemic took hold in North America and our markets reacted. Again, within a few weeks, the investments they had just purchased were worth almost 30% less. Markets rebounded quickly and by early 2021, those investments were back to where they started. The clients also collected a lot of dividends along the way. Today, even after the recent drop, those investments are worth over 15% more than their original value in 2020.

We all tend to say something like “if only I knew and I had waited, I could have bought much lower”. But what often happens is that people see what’s occurring and are too nervous to make those investments when markets are falling and they never take advantage of the great prices.

Today, there are no doubt, reasons to be concerned about the global economy and about the values of our portfolios. Inflation is high, interest rates are rising after decades of being quite low. Supply chain problems, the effects of the pandemic and the threat of escalating conflict in the Ukraine all contribute to negative sentiment.

I would say this.  For once we can call something “precedented”.  By that I mean, we’ve been in this situation before.  The details and exact circumstances are unique as they are with every crisis.  But the idea of uncertainty is nothing new.  This is an adjustment phase.  Companies’ profits may shrink, consumer spending may pull back and stock prices will reflect a different view of the future.  But then, inflation will come down, the outlook will improve and stock values will take off – probably quite quickly.

There are many past events that gave us cause for concern at the time:  The “tech-wreck” of the late 1990’s; the September 11th bombings and the international conflict that followed.  We’ve been through these things before.

It may get worse before it gets better.  You may throw this blog in my face in a few months and tell me to find another career.  But patient, disciplined investors will pull through and maintain their strength.  Like before, the numbers will make them wonder if it ever happened.

One final thing about time horizon.  If you remember these events then you’re old enough to say to me, “I don’t have as much time to wait for a recovery.  I wouldn’t care if I were younger.”  I believe you are still a long-term investor.  Even if you’re on the cusp of retirement, you may only be using a small portion of your portfolio in the near term.  The vast majority of your money will remain invested for the long term; decades perhaps.

People have done well even when they invested at what seemed like the worst possible time.  That’s why I say, we should always be bullish.

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